PSNC 2013: Metric Taking

June 7, 2013
(PLANSPONSOR.com) – Participation rate may be a common standard for plan
sponsors when they look into the benchmarking process, but not many would say
it is a sufficient—or even very informative—measure of plan success.

A panel at
the 2013 PLANSPONSOR National Conference, moderated by Paul D’Aiutolo,
institutional consultant and retirement plan consultant for the D’Aiutolo
Institutional Consulting Team, discussed best practices for sponsors when evaluating
their plans.

At the
beginning of a new benchmarking project, plan sponsors should ask themselves:
“How did we get to where we are, and where do we want to go?” said David Hinderstein, president of Strategic
Retirement Group. When considering the best way to evaluate a plan, he added,
sponsors should keep in mind what their plans are trying to achieve and
customize their benchmarks accordingly. What are the guiding principles of the
organization? Does that attitude reflect what is being done with the plan? Plan
sponsors should look to see if that data is consistent first, he said, then
reaffirm or determine new plan objectives.

Jennifer
Flodin, managing partner at Plan Sponsor Advisors, noted that fees and services
are the only things fiduciaries must benchmark, but what your fee benchmark
shows can be complicated. Many times a plan’s total fees may be “reasonable,”
but that does not mean there is no room to negotiate for lower costs.

She
clarified that plan sponsors should not aim to have the cheapest plan, but they
should be aware whether there are any cost-drivers that do not actually add
value to their plans or positively impact participant behavior. Hinderstein
agreed, saying: “Reasonable is not enough. There’s room to improve.”

According to
Michele Suriano, president of Castle Rock Investment Company, however, fees
have very little impact on participant outcome, compared to deferral rate. One
tool she favors when measuring plan success: a median-participant “avatar.” She
creates a composite representative of a particular plan, taking into account
the median age, salary, deferral rate and account balance of that specific
population. Suriano then evaluates the avatar against the National Savings Rate
Guidelines for Individuals. If there is a difference between the median and
target deferrals, she says, behavioral finance techniques can be applied to
raise the rate.

Asked about
how they envision the “ideal plan of the future,” Flodin answered that all plan
metrics should revolve around what the participant outcome is going to be.
Hinderstein added that cost and design should be more integral to the
organization. Suriano said the plan should simply enable participants to retire.

Retirement
plans have become a social issue, Hinderstein said, all of us will have to pay
for it if we fail.